Tagged Questions

Could someone please provide me with a clear and concise definition of the $\tau$ parameter in the Black-Litterman model? It seems one is rather hard to come by. I understand it to be the 'weight on ...

In Black-Litterman we get a new vector of expected returns of the form:
\begin{align}
\Pi_{BL} = \Pi + \underbrace{\tau \Sigma P^T[P\tau\Sigma P^T+\Omega]^{-1}}_{\text{correction}}[Q-P\Pi]
\end{align}
...

I went through The Black-Litterman Approach: Original Model and Extensions - see also. The BL approeach starts with a prior on the expected returns vector derived from the hypothesis that the market ...

In an attempt to learn Black-Litterman I have come across this "simple" example. Suppose that you analyze market data using CAPM
$$r_i-r_f=\beta_i(r_m-r_f)+\epsilon_i$$
Suppose there are 2 assets in ...